2018 (8) TMI 1490 - AT - Income Tax

Valuation of closing stock - assessee is a company engaged in the business of iron ore mining and export - consistency in following the same method of valuation of closing stock - Held that - As relying on OSWAL WOOLLEN MILLS LTD. VERSUS INCOME TAX OFFICER 1986 (7) TMI 162 - ITAT CHANDIGARH Assessee applied same principle for valuation of opening stock, which was applied for valuation of closing stock and further same method was being applied consistently even in all subsequent years - Assessing Officer had not given any logical basis for not accepting valuation of work-in-progress - if AO objected to valuation of closing stock, he should have also objected to opening stock on same basis, which was not done - thus the action of the AO of changing the method of valuation of closing stock without pointing out any reason for the rejection of valuation of closing stock which was accepted by the department in earlier assessment year, is not justified. The calculation mistake done by the AO has been corrected by the Ld.CIT(A). The assessee has been consistently following the same method of valuation of closing stock year after year. The AO has been accepting this method in the earlier years also. Hence even on the ground of consistency, the order of the AO on this issue had to be reversed. - Decided in favour of assessee. Disallowance of depreciation on amortized wagon cost - company purchased railway rakes under Wagons Investment Scheme ( WIS ) from Indian Railways - AO disallowed the depreciation on the ground that Indian Railways is the bonafide owner of the wagons and hence the assessee is not entitled to the claim depreciation - Held that - We find that under the scheme, the assessee would be the owner of the wagon in question. Unless he is the owner of the wagon, the question of transfer of ownership from the assessee to the Railways does not arise. case of CIT vs Rajasthan Syntex Ltd 2008 (5) TMI 276 - RAJASTHAN HIGH COURT not applicable - In the case on hand, under sub-clause 5.5 of the agreement of WIS, no lease rent whatsoever is to be paid. The assessee has claimed depreciation @ 15% u/s 32 of the Act. Ld.CIT(A) has rightly allowed the claim of the assessee. We uphold the same and dismiss this ground of appeal of the Revenue. - Decided in favour of assessee.

Summary

Issues Involved: Valuation of closing stock and Depreciation on railway rakes.

Valuation of Closing Stock:
The appeal pertains to the valuation of closing stock and depreciation on railway rakes for the assessment year 2008-09. The assessee, a company engaged in iron ore mining and export, valued its closing stock at ?19,11,69,852.32 following a consistent policy of valuing stocks at cost or market price, whichever is lower. The AO made an addition to the closing stock based on a calculation error, which the assessee disputed. The Ld.CIT(A) ruled in favor of the assessee, highlighting that the AO had not provided a logical basis for rejecting the assessee's method of valuation, which had been accepted in previous years. The Ld.CIT(A) emphasized the importance of consistency and cited a precedent from the Punjab and Haryana High Court to support the decision. The ITAT Kolkata upheld the Ld.CIT(A)'s order, noting that the assessee's method of valuation had been consistently accepted by the AO in earlier years, and there was no justification for changing it. The ITAT Kolkata found no fault in the factual findings of the Ld.CIT(A) and upheld the decision.

Depreciation on Railway Rakes:
The second issue in the appeal was the disallowance of depreciation on railway rakes purchased under the Wagons Investment Scheme (WIS) from Indian Railways. The AO disallowed the depreciation, arguing that Indian Railways was the rightful owner of the wagons. However, the Ld.CIT(A) disagreed, pointing out that under the WIS, the assessee was the owner of the wagons for the initial 10 years, and the ownership would transfer to Indian Railways after that period. The Ld.CIT(A) noted that the assessee had correctly accounted for the amortization amount and depreciation of other assets in its books. The ITAT Kolkata concurred with the Ld.CIT(A)'s reasoning, emphasizing that unless the assessee was the owner of the wagons, the question of ownership transfer did not arise. The ITAT Kolkata upheld the Ld.CIT(A)'s decision to allow the depreciation claim and dismissed the appeal of the Revenue.

In conclusion, the ITAT Kolkata dismissed the appeal of the Revenue concerning the valuation of closing stock and the depreciation on railway rakes, upholding the decisions of the Ld.CIT(A) on both issues. The judgment emphasized the importance of consistency in valuation methods and ownership rights in determining depreciation claims, providing detailed reasoning and legal references to support the rulings.